The U.S. cryptocurrency firm Circle’s USD Coin lost its dollar peg and fell to a record low Saturday morning after the company revealed it has nearly 8% of its $40 billion in reserves tied up at the collapsed lender Silicon Valley Bank.
USDC is known as a stablecoin, which means the value of the virtual currency is supposed to be pegged to a reference currency. USDC is designed to trade at $1, but it fell below 87 cents on Saturday, according to data from CoinDesk.
Regulators shuttered SVB Friday and seized its deposits in what has become the largest U.S. banking failure since the 2008 financial crisis. The company’s spectacular implosion began late Wednesday when it surprised investors with news that it needed to raise $2.25 billion to shore up its balance sheet. What followed was the rapid collapse of a highly-respected bank that had grown alongside its technology clients.
In a tweet Friday, Circle said it has $3.3 billion in remaining reserves at SVB. The company called for the continuity of the bank and said it will follow guidance from regulators.
The cryptocurrency industry is still picking up the pieces after the sudden collapse of FTX last year, and USDC’s break with the dollar could signal more trouble ahead. Stablecoins, like banks, are vulnerable to runs.
SVB customers withdrew a staggering $42 billion of deposits by the end of Thursday, according to a California regulatory filing. By the close of business that day, SVB had a negative cash balance of $958 million, according to the filing, and failed to scrounge enough collateral from other sources.
If USDC holders get spooked or worry that there is not enough money in reserve, they could also rush to sell or exchange their coins.
Circle did not immediately respond to requests for comment.